A Tale of Leadership in Value Creation

In this prologue to his new book, Curing Corporate Short‐Termism, the founder and CEO of Fortuna Advisors presents a fictional account of a corporate turnaround—a “composite” reflection of the author's many years of consulting experience that dramatizes the pressure to meet near‐term earnings targets and other kinds of “agency” problems facing a public company called Blue Dynamics Corp. The tale begins with the puzzlement of the incoming CEO, Betty Manning, at finding the company's highest‐return business unit starved for investment, even as the low‐return units continue to receive and spend capital with little success. At the core of the company's capital allocation and “underinvestment” problems, she finds a corporate‐wide performance measurement and reward system focused on setting and beating budgets and growth in EPS and ROE. Manning's solution is to divorce the performance and reward system entirely from the budgeting process and implement new annual incentives and target‐setting practices that result in both more reliable budgeting and forecasting and a longer‐term view of value creation. The new measure of economic profit, called BDVA (short for Blue Dynamics Value Added), is based on a customized measure of EBITDA less a capital charge. The adoption of the new measure has the effect of encouraging her team to take a number of decisive steps: make an objective, “fact‐based” case for a strategic acquisition whose price appears to be too high (at least using conventional measures like EPS accretion); pull the trigger on a divestment that appears to have been adding value, but is more valuable outside the firm; and, more generally and most important, guide operating managers toward an ideal balance of overall growth and return on capital.     

Lessons from the Financial Crisis on Risk and Capital Management: The Case of Insurance Companies

This article proposes that risk management be viewed as an integral part of the corporate value‐creation process— one in which the concept of economic capital can provide companies with the financial cushion and confidence to carry out their strategic plans. Using the case of insurance and reinsurance companies, the authors discuss three main ways that the integration of risk and capital management creates value:

• 1 strengthening solvency (by limiting the probability of financial distress);
• 2 increasing prospects for profitable growth (by preserving access to capital during post‐loss periods); and
• 3 improving transparency (by increasing the “information content” or “signaling power” of reported earnings).

Insurers can manage solvency risk by using Enterprise Risk Management (ERM) models to limit the probability of financial distress to levels consistent with the firm's specified risk tolerance. While ERM models are effective in managing “known” risks, we discuss three practices widely used in the insurance industry to manage “unknown” and “unknowable” risks using the logic of real options—slack, mutualization, and incomplete contracts. Second, risk management can create value by securing sources of capital that, like contingent capital, can be used to fund profitable growth opportunities that tend to arise in periods following large losses. Finally, the authors argue that risk management can raise the confidence of investors in their estimates of future growth by removing the “noise” in earnings that comes from bearing non‐core risks, thereby making current earnings a more reliable guide to future earnings. In support of this possibility, the authors provide evidence showing that, for a given level of reported return on equity (ROE), (re)insurers with more stable ROEs have higher price‐to‐book ratios, suggesting investors' willingness to pay a premium for the stability provided by risk management.     

Creating Value Through Best‐In‐Class Capital Allocation1

With the economy showing signs of recovery, companies are shifting their focus from liquidity and balance sheet concerns back towards capital allocation and value creation. This article provides a comprehensive framework to examine shareholder value creation through capital allocation, and discusses important capital allocation lessons that have re‐emerged over the last few years. Notable among the key lessons are the following:

• ? Growth alone does not guarantee value creation, which suggests that companies should allocate capital based on the economic value of each investment opportunity.
• ? The limits of diversification in a financial crisis should be considered when allocating capital and managing liquidity.
• ? Companies should be conservative with base‐case cash flow projections and incorporate the possibility of downside scenarios into their projections.
• ? It is important to incorporate all forms of capital when managing liquidity.
• ? Whether using a long‐term or current‐market approach, companies should be consistent throughout the cycle in their cost of capital methodology.
• ? Companies should continually rethink investments and allocate capital in an attempt to maintain a competitive advantage.
• ? Evaluate returns relative to risk and cost of capital, and not against the company's average ROIC.
• ? Comparing the IRR of share repurchases to new investments is not an apples‐to‐apples comparison.

Finally, companies should concentrate on the strategic uses and value of particular assets and not allow their decisions to be driven by the value they might receive relative to their initial cost.     

Incentives and Investor Expectations

This article argues that the Expectations‐Based Management (EBM) measure proposed by Copeland and Dolgoff (in the previous article) is essentially the same measure that EVA companies have used for years as the basis for performance evaluation and incentive compensation. After pointing out that the analyst‐based measures cited by Copeland and Dolgoff do not provide a basis for a workable compensation plan, the authors present the outline of a widely used expectations‐based EVA bonus plan. In so doing, they demonstrate the two key steps in designing such a plan: (1) using a company's “Future Growth Value”—the part of its current market value that cannot be accounted for by its current earnings— to calibrate the series of annual EVA “improvements” expected by the market; and (2) determining the executive's share of those improvements and thus of the company's expected “excess” return. One of the major objections to the use of EVA, or any single‐period measure, as the basis for a performance evaluation and incentive comp plan is its inability to reflect the longer‐run consequences of current investment and operating decisions. The authors close by presenting a solution to this “delayed productivity of capital” problem in the form of an internal accounting approach for dealing with acquisitions and other large strategic investments.     

What Public Companies Can Learn from Private Equity Pay Plans

Studies of private equity pay, including one by current SEC commissioner Robert Jackson, have pointed to restrictions on equity sales as a key difference between private equity and public company pay. In this article, the author argues that there is another very important difference: equity compensation in PE pay plans is typically front loaded, with top executives of portfolio companies often required to buy shares, and receiving upfront option grants on three times the number of shares they purchase. Such front‐loaded equity compensation allows PE pay plans to avoid the unintended effects of the “competitive pay policy” that have been embraced by public companies for the past 50 years. Competitive pay—targeted, for example, to provide 50th percentile total compensation regardless of past performance—has the effect of creating a systematic “performance penalty,” rewarding poor performance with more shares and penalizing superior performance with fewer shares. The author's research shows that, for public companies during the past decade or so, the number of shares granted has fallen by 7% for each 10% increase in share prices—and that, primarily for this reason, the front loaded option grants used by PE firms have provided five times more incentive (“pay leverage”) than the average public company's annual series of equity grants. What's more, to the extent that PE pay has been guided by partnership and fixed‐sharing concepts rather than competitive pay, it is the spiritual heir to the value‐sharing concepts that guided public company pay in the first half of the 20th century. For 60 years, General Motors used value sharing in “economic profit”—10% of GM's profit above a 7% return on capital was the formula for the bonus pool for many years—as the basis for all incentive compensation. The author uses the GM history to highlight four ways to improve public company incentives and corporate governance.     

Corporate Portfolio Management Roundtable

The dean of a top ten business school, the chair of a large investment management firm, two corporate M&A leaders, a CFO, a leading M&A investment banker, and a corporate finance advisor discuss the following questions:

• ? What are today's best practices in corporate portfolio management? What roles should be played by boards, senior managers, and business unit leaders?
• ? What are the typical barriers to successful implementation and how can they be overcome?
• ? Should portfolio management be linked to financial policies such as decisions on capital structure, dividends, and share repurchase?
• ? How should all of the above be disclosed to the investor community?

After acknowledging the considerable challenges to optimal portfolio management in public companies, the panelists offer suggestions that include:

• ? Companies should establish an independent group that functions like a “SWAT team” to support portfolio management. Such groups would be given access to (or produce themselves) business‐unit level data on economic returns and capital employed, and develop an “outside‐in” view of each business's standalone valuation.
• ? Boards should consider using their annual strategy “off‐sites” to explore all possible alternatives for driving share‐holder value, including organic growth, divestitures and acquisitions, as well as changes in dividends, share repurchases, and capital structure.
• ? Performance measurement and compensation frameworks need to be revamped to encourage line managers to think more like investors, not only seeking value‐creating growth but also making divestitures at the right time. CEOs and CFOs should take the lead in developing a shared value creation model that clearly articulates how capital will be allocated.

     

Are Performance Shares Shareholder Friendly?

Performance shares, or PSUs, have become the largest element of pay for top executives in corporate America. Their spread was ignited by institutional investors looking for more “shareholder‐friendly” equity awards—as opposed to restricted stock and stock options, which have been characterized as “non‐performance” equity. Although that characterization has been challenged by many directors and compensation professionals, proxy advisers like Institutional Shareholder Services have continued to insist that the majority of stock be granted based on performance, compelling public companies to conform to that standard. With over a decade of experience with PSUs, the evidence is in regarding their net effect:

• PSUs greatly complicate long‐term incentives. Pay disclosures are dominated by discussion of PSUs, including metrics, goals, performance and vesting, and any differences in one grant year versus the next over three overlapping periods.
• PSUs may be contributing to the increase in pay. Companies issuing a significant portion of their long‐term incentives in the form of PSUs have been granting about 35% more in value than companies granting only restricted stock and stock options.
• Shareholders don't appear to be getting anything for that added complexity and cost. S&P 500 companies using PSUs have underperformed their sector peers, and companies using solely “non‐performance” equity have significantly outperformed their sector peers, and in every single year over the last decade.

Given these findings on PSUs, it is time for institutional investors and their proxy advisors to reconsider their view of these vehicles as “shareholder‐friendly,” and rethink their unqualified promotion of their use by the companies they invest in.     

The Purpose of the Firm,Valuation, and the Management of Intangibles

This article provides a different way of thinking about, and responding to, four important issues that confront most public companies. First, in articulating the overarching corporate purpose, the author suggests a middle ground between shareholder value maximization and stakeholder theory that aims to achieve the end result of value maximization while taking a “holistic” view that meets most of the demands of stakeholder advocates. As described by the author, there are four critical steps for management and boards in creating such companies: (1) communicating a vision of the company and its purpose to employees as well as investors (and other key outsiders); (2) organizing to survive and prosper through efficiency and innovation; (3) working continuously to develop win‐win relationships with stakeholders and other companies; and (4) taking care of the environment and future generations. Second, in thinking about the corporate purpose and how to evaluate success in achieving it, managements and boards need a valuation model that provides a clear and insightful connection between long‐term corporate performance and market valuation, and how both might be expected to change as the firm matures. A strong case is presented for the life‐cycle valuation model, widely used by money management organizations, in which a company's projected cash flows reflect an expected “fade” in both economic returns on capital and reinvestment rates. The potential uses of this model are illustrated using lifecycle corporate performance data for 3M during the past 50 years. Third, in an effort to capture the value of innovation and investment in intangible assets, the author presents an alternative to the accounting approach of capitalizing and amortizing such assets that attempts to capture their expected future benefits by using more favorable forecasts of long‐term fade rates. Fourth, the author shows how incorporating Life‐cycle Reviews for each of a company's business units as part of its Integrated Reporting could improve management's resource allocation decisions, help build a shareholder base of long‐term investors, and provide management with the support and confidence to resist Wall Street's excessive emphasis on quarterly earnings.     

The Pragmatic Theory of the Firm

Four key ideas provide the foundation for the pragmatic theory of the firm, which is expecially useful for managements and boards in developing an understanding of how companies create long‐term value for the benefit of all stakeholders. First, and a necessary point of departure, is clarity about the purpose of the firm. Maximizing shareholder value is viewed not as the social purpose of the firm, but as a consequence of a company's effectiveness in carrying out a purpose that recognizes the benefits of success to all key corporate stakeholders. Second, a company's knowledge‐building proficiency, in relation to that of its competitors, is viewed as the primary determinant of its long‐term performance. Nurturing and sustaining a knowledge‐building culture facilitates the discovery of obsolete assumptions and early adaptation to a changing environment. Third, the theory avoids “compartmentalizing” a company's activities into silos by treating the firm as a holistic system. A key component of the theory that quantifies corporate performance is the life‐cycle framework in which economic returns exhibit “competitive fade” over the long term. This holistic way of thinking provides insights about intangible assets and other sources of excess shareholder returns. Fourth, managing corporate risk should focus on identifying and removing all major obstacles to achieving the firm's purpose. Such obstacles can lead to value destruction through, for example, unethical behavior and all forms of shortsighted failure to recognize and make the most of opportunities to increase long‐run productivity and value. This theory of the firm is pragmatic in the sense that it aims to produce insights about a company's (or business unit's) performance that can improve management's decisions, especially in allocating capital and other corporate resources. The author uses John Deere's life‐cycle track record over the past 60 years to illustrate a successful application of the theory.     

Allocating Shareholder Capital to Pension Plans

This article discusses the corporate challenge of providing retirement income to employees while limiting the costs and risks of pension plans to the companies themselves by addressing five main questions:

• ? What are the major issues and challenges surrounding pensions? Although the pension shortfalls have been the focus of attention, the author argues that the more serious concern is the risk stemming from the mismatch between pension assets and pension liabilities— that is, the funding of debt‐like liabilities with equity‐heavy asset portfolios.
• ? To what extent do the equity market and equity prices reflect the shortfall in value and the mismatch in risk? While the author describes some evidence of the market's ability to capture pension risk, analysts' P/E multiples and management's assessments of cost of capital may still be distorted by failure to take full account of the risks associated with pension assets.
• ? How should management analyze and formulate strategic solutions? Without offering specific solutions, the author presents a framework for analyzing the problem from a strategic perspective that can be used in formulating a company's pension policy. In particular, the article recommends that companies take an integrated perspective that views pension assets and liabilities as parts of the corporate balance sheet, and the pension asset allocation decision as a critical aspect of a corporate‐wide enterprise risk management program.
• ? If a company chooses to make a major change in its pension policy, such as a partial or complete immunization accomplished by substituting bonds for stocks, how would you communicate the new policy to the rating agencies and investors?
• ? What are the major issues to be thinking about when contemplating a change from a DB plan to a defined contribution, or DC, plan? The author argues that DC plans without some corporate oversight or responsibility for results are not a long‐term solution.

     

Loyalty‐Shares: Rewarding Long‐term Investors

In the face of growing concern about investors' excessive focus on quarterly earnings, recent research has found new evidence of the benefits of a committed long‐term shareholder base, whether in terms of higher profitability, R&D investment, greater integration of ESG factors, or a reduced cost of capital. In light of this evidence, this article takes up the challenge of proposing a market solution to this problem. Although much has already been done in the financial industry to lengthen the outlook of executives by imposing longer vesting periods for stock options, a significant fraction of institutional shareholders continues to have a short‐term orientation. The authors propose that companies try to attract a more long‐term‐oriented shareholder base by modifying the form of the common share contract to include a special reward for buy‐and‐hold investors. The type of contract proposed—called a “loyalty share”—is a call‐warrant attached to each share that is exercisable at a specified time‐horizon—say, three years—and exercise price, but is nontransferable and hence has value only if the share is held for the entire length of the specified “loyalty period.” Such a reward is expected to encourage a longer‐term valuation outlook, since those shareholders seeking the loyalty reward are likely to be those who are most confident about the company's ability to increase its value through the expiration of the loyalty period.     

Attracting Long‐Term Shareholders

Corporate CEOs often say they don't hear enough from shareholders about strategic issues related to long‐term value creation. At the same time, they claim to hear with predictable regularity from short‐term investors about their success (or failure) in hitting consensus earnings targets. But as the authors of this article begin by noting, there is mounting evidence that companies get the shareholders they deserve—that companies that provide quarterly earnings guidance and otherwise focus investor attention on near‐term earnings targets tend to attract more transient investors. The authors go on to argue that companies with a compelling long‐term vision can expect to benefit not only from more farsighted managerial decision‐making, but also from building a base of longer‐term investors who share management's view of success, and how it can and ought to be achieved. Such a shift in strategic focus and disclosure toward longer‐run performance creates a virtuous cycle—one in which companies that gain the interest and backing of investors with longer horizons end up reinforcing management's confidence to undertake value‐adding investments in their company's future. Even if most companies can't pick their shareholders, they can develop an investor engagement strategy designed to attract long‐term investors. In this article, the chairman and president of FCLTGlobal outline the underlying strategy behind long‐term investor relations and the four key components of such an approach.     

Strategic Financial Management: Lessons from Seasoned Equity Offerings

Each of today's three dominant academic theories of capital structure has trouble explaining the financing behavior of companies that have seasoned equity offerings (SEOs). In conflict with the tradeoff theory, the authors’ recent studies of some 7,000 SEOs by U.S. industrial companies over the period 1970‐2017 notes that the vast majority of them—on the order of 80%—had the effect of moving the companies away from, rather than toward, their target leverage ratios. Inconsistent with the pecking‐order theory, SEO issuers have tended to be financially healthy companies with low leverage and considerable unused debt capacity. And at odds with the market‐timing theory, SEOs appear to be driven more by the capital requirements associated with large investment projects than by favorable market conditions. The authors’ findings also show that, in the years following their stock offerings, the SEO companies tend to issue one or more debt offerings, which have the effect of raising their leverage back toward their targets. Whereas each of the three theories assumes some degree of shortsightedness among financial managers, the authors’ findings suggest that long‐run‐value‐maximizing CFOs manage their capital structures strategically as opposed to opportunistically. They consider the company's current leverage in relation to its longer‐run target, its investment opportunities and long‐term capital requirements, and the costs and benefits of alternative sequences of financing transactions. This framework, which the authors call strategic financial management, aims to provide if not a unifying, then a more integrated, explanation—one that draws on each of the three main theories to provide a more convincing account of the financing and leverage decisions of SEO issuers.     

Identifying and Attracting the "right" Investors: Evidence on the Behavior of Institutional Investors

This article summarizes the findings of research the author has conducted over the past seven years that aims to answer a number of questions about institutional investors: Are there significant differences among institutional investors in time horizon and other trading practices that would enable such investors to be classified into types on the basis of their observable behavior? Assuming the answer to the first is yes, do corporate managers respond differently to the pressures created by different types of investors– and, by implication, are certain kinds of investors more desirable from corporate management's point of view? What kinds of companies tend to attract each type of investor, and how does a company's disclosure policy affect that process? The author's approach identifies three categories of institutional investors: (1) “transient” institutions, which exhibit high portfolio turnover and own small stakes in portfolio companies; (2) “dedicated” holders, which provide stable ownership and take large positions in individual firms; and (3) “quasi‐indexers,” which also trade infrequently but own small stakes (similar to an index strategy). As might be expected, the disproportionate presence of transient institutions in a company's investor base appears to intensify pressure for short‐term performance while also resulting in excess volatility in the stock price. Also not surprising, transient investors are attracted to companies with investor relations activities geared toward forward‐looking information and “news events,” like management earnings forecasts, that constitute trading opportunities for such investors. By contrast, quasi‐indexers and dedicated institutions are largely insensitive to shortterm performance and their presence is associated with lower stock price volatility. The research also suggests that companies that focus their disclosure activities on historical information as opposed to earnings forecasts tend to attract quasi‐indexers instead of transient investors. In sum, the author's research suggests that changes in disclosure practices have the potential to shift the composition of a firm's investor base away from transient investors and toward more patient capital. By removing some of the external pressures for short‐term performance, such a shift could encourage managers to establish a culture based on long‐run value maximization.     

Expectations‐Based Management

The authors begin by summarizing the results of their recently published study of the relation between stock returns and changes in several annual performance measures, including not only growth in earnings and EVA, but changes during the year in analysts' expectations about future earnings over three different periods: (1) the current year; (2) the following year; and (3) the three‐year period thereafter. The last of these measures—changes in analysts' expectations about three‐ to five‐year earnings—had by far the greatest explanatory “power” of any of the measures tested. Besides being consistent with the stock market's taking a long‐term, DCF approach to the valuation of companies, the authors' finding that investors seem to care most about earnings three to five years down the road has a number of important implications for financial management: First, a business unit doesn't necessarily create shareholder value if its return on capital exceeds the weighted average cost of capital—nor does an operation that fails to earn its WACC necessarily reduce value. To create value, the business's return must exceed what investors are expecting. Second, without forecasting returns on capital, management should attempt to give investors a clear sense of the firm's internal benchmarks, both for existing businesses and new investment. Third, management incentive plans should be based on stock ownership rather than stock options. Precisely because stock prices reflect expectations, the potential for prices to get ahead of realities gives options‐laden managers a strong temptation to manipulate earnings and manage for the short term.     

Creating Value at the Intersection of Sourcing,Hedging and Trading

Higher commodity prices, along with higher currency and commodity price volatility, have combined with challenging economic circumstances to make for difficult economics within many industries today. These factors can introduce risk to both top‐line revenue and the cost structure, and wreak havoc on net cash flow and profitability. To the extent that high prices and increasing price volatility continue to be the rule in many global commodity categories, the authors suggest that both sourcing and hedging will soon be (if they are not already) near the top of the strategic agenda for many companies. Many companies now design their hedging programs—and in some cases their sourcing—to achieve the goals of reducing cash flow volatility and optimizing value (as opposed to the more conventional aim of minimizing sourced or manufactured unit cost). And a growing number of corporate managements have expressed interest in an even more systematic approach to risk management. Rising pressure for growth and profitability has led companies with large commodities exposures—both those that are naturally long and those with a natural short—to explore a more strategic role for commodity hedging and trading, as well as the use of innovative risk‐shifting mechanisms for inbound and outbound material flows. This article shows how companies can design their commodity risk management programs to make the greatest use of the expertise and capabilities of four different corporate groups: Purchasing, Treasury, Selling, and Marketing. To that end, the authors presents a five‐step program for creating a company‐wide strategic risk management program:

• ? The first step involves making active design choices about what risks to “own” and what risks to limit based on the company's strategy, core competencies, and relative competitive advantages in owning that risk.
• ? The second step is to establish relevant risk guidelines based on capacity to own risks and, to a lesser extent, risk appetite, with specific hedging targets and benchmarks. This involves defining objectives, priorities, and constraints (for example, protecting liquidity or increasing debt capacity by reducing cash flow volatility).
• ? The third step is to identify and characterize a complete inventory of all exposures—source, size and drivers—and those exposures to be managed. This involves defining, measuring and analyzing all exposures (e.g., commodities, FX, interest rates), with special attention to aggregating, netting, natural offsets, and correlations.
• ? The fourth step involves comparing the suitability of various hedging tools and determining how to incorporate these tools into a systematic program that will achieve stated goals, views, and risk preferences for each exposure.
• ? The fifth and last step is establishing an appropriate risk management operating model, which involves considerations of organizational architecture, management processes, decision rights, information flows, and governance.

     

VALUE MAXIMIZATION AND STAKEHOLDER THEORY: COMPATIBLE OR NOT?

Complicating the current corporate governance controversy is a major disagreement about the fundamental purpose of the corporation. There are two main views on what should constitute the principal goal of the firm. Most economists tend to endorse value maximization—that is, maximization of the value of the firm's debt plus equity—or a version of value maximization known as “value‐based management” (VBM) that aims to maximize shareholder value. The main challenger is “stakeholder theory,” which argues that the corporation exists to benefit not just investors but all its major constituencies—employees, customers, suppliers, the local community, and the federal government, as well as shareholders. Thus, whereas the success of a corporation under VBM could be assessed simply by its long‐run return to shareholders, under stakeholder theory a company's success would be judged by taking account of its contributions to all its stakeholders. Using statistical analysis of various measures of corporate success in satisfying non‐investor stakeholders, the author investigates whether a broader focus on multiple stakeholders is necessarily inconsistent with the pursuit of long‐term shareholder value. His main findings in fact suggest just the opposite—namely, that long‐term value creation appears to be a necessary condition for maintaining corporate investment in stakeholder relationships. More specifically, the author's study shows that companies with higher levels of value creation tend to have stronger reputations for treating stakeholders well while companies that create little value end up shortchanging not just their shareholders but all their constituencies. For profitable companies that have previously failed to devote the optimal level of resources to their non‐investor stakeholders, the message of this article is that investing in stakeholders can add value—and, in fact, it pays for companies to spend an additional dollar on stakeholder relationships as long as the present value of the expected (long‐run) return is at least a dollar.     

Navigating in the Midst of More Uncertainty and Risk

With the steady increase in the variety and scale of uncertainties and risks, the challenges for today's executives have become ever more complex and daunting. One powerful tool for navigating among different risks and uncertainties is scenario planning. From its early days of use within Shell, scenario planning has evolved in ways that make it better suited to the tasks of identifying, analyzing, and managing various financial risks across different industries. During the last ten years, Morgan Stanley has also been using scenario planning to gain a better understanding of key risks and uncertainties facing the financial services industry, ranging from the consequences of possible changes in the dollar to the emergence of hedge funds and the remarkable growth of China and India. In discussing the benefits of scenario planning, the authors note its potential to help management in a number of ways:

• ? By challenging conventional thinking and current assumptions about its industry and world;
• ? By identifying key signals or potential direction changes ahead of time, which is especially important when lead times to invest, hedge, or change assets are limiting factors;
• ? By identifying and assessing the value of strategic or “real” options—options to invest in new opportunities or limit downside risks that may suddenly open up or disappear, and that man‐ agement must be prepared to “exercise” quickly and decisively;
• ? By reinforcing the recognition that value added comes not just from better strategic thinking and planning, but from the role of risk management in helping companies take advantage of new opportunities;
• ? By encouraging more cross‐divisional and firm‐wide conversations about strategic choices and options, thereby creating a shared understanding of and greater consensus about chosen strategies; and
• ? By forcing them to go beyond the limits of typical three‐to‐five year forecasting limitations to think hard about longer‐term strategic choices.